Focus: Winter 2013 - The Light Ahead

EDITORIAL

By Paul Wyse

Home prices are starting to increase country-wide and Dublin is seeing double digit growth. The Central Bank forecast is for a continuation of the gradual recovery in the overall level of economic activity.

There has been a small recovery in consumer spending since Q1 and also in exports. GDP growth of circa 2% is forecast by the Central Bank for 2014. The recovery is gradually broadening. On the domestic side while prospects remain modest, employment continues to rise. While very significant action has been taken in recent years to lower the public sector costs and contain national debt, the levels of both in relative and absolute terms remains very high.

Ireland is at the point of exiting the EU/IMF programme but is doing so at a time when deficit and debt levels are high and there are risks to be managed in the future. The market will watch how Ireland performs outside the programme and whether the sustainability of the overall debt position is firmly secured. In the banking sector further progress is needed to address asset quality and profitability in order to put the system back on a sustained sound footing and make credit available to businesses on a more normalised basis.

Our recently completed second annual survey of the Irish law firms sector has predicted a positive outlook for 2014 and the highlights of this survey are set out in this newsletter. Aine Reidy helps us prepare for the New Year and gives some useful budgeting and forecasting tips. Rachel Stone sets out how to build partner performance models in professional practices to ensure partner business development activity is measured. Manus Quinn helps spot financial warning signs for professional practices. Seán McNamara reviews the first few months' activity under the new personal insolvency regime.

We wish all our clients, friends and professional contacts a very happy Christmas and look forward to a more prosperous New Year for all.

A NEW YEAR AHEAD - TIME FOR A NEW BUDGET AND FORECAST

By Aine Reidy

With a new year just around the corner it's time to turn our attention to budgets and forecasts for the year ahead. For many the focus in recent years has been on survival and cash flow continues to be a challenge. But, while times are still difficult there are signs of a sustainable recovery.

Accurate budgeting and forecasting can alert a business to opportunities arising in a changing environment, this in turn gives a business the chance to take advantage at the earliest possible opportunity and gain a competitive advantage.

Sales rise and fall, markets fluctuate. This constant change makes it difficult to cater for all potential eventualities. However, the need for flexibility does not excuse a lack of forward planning. Businesses should do all they can to plan for the ups and downs of the economic cycle, thus avoiding the pitfalls associated with fluctuations in trading and cash flow difficulties. The primary driver of such planning is the budgeting and forecasting process.

As well as being an essential part of the business and scenario planning process, budgets and forecasts are a key risk management tool in your business. Budgets are typically fixed in advance and remain static for the duration of a selected period. They provide management with the ability to identify how and, more importantly, why actual results differ from those that were originally expected. By referencing the actual results against the assumptions used in the budgeting process the reason for the divergence can be analysed. It may be that margins varied from those predicted at the outset of the period; perhaps an unwelcome bad debt arose; there may have been unexpected currency fluctuations; overheads may be out of line with predictions. A business must be alive to changes in the business environment and to the accuracy of management's own assumptions if it is to thrive and to grow its business.

It is a reality that budgets and forecasts have both an internal and an external audience. A business's bankers are likely to demand access to both. While there may be a temptation on the part of a business to tend towards the optimistic end of possible scenarios in the hope of impressing the bank, such an approach runs the risk of being counter-productive over time. Over-optimistic budgeting and forecasts militate against good business husbandry. Furthermore, the bankers will quickly lose confidence in a business that constantly fails to live up to its own forecasts.

While budgets normally remain fixed for the selected period, forecasts are updated as and when actual...